Risk and Uncertainty

In the most recent edition of The New Yorker (April 20, 2009) James Surowiecki ("The Financial Page: Hanging Tough") offers some interesting insights about the economy and the history of how companies move ahead through recessions. Great companies are those that use such times to leap forward rather than just weathering the storm. Kellogg for example outpaced its rival Post in the late 20's, increasing its profits by 30% by 1933. Apple launched the iPod in 2001. You know the rest of that story. In the past I never read stories about the economy but these days I am drawn to them more and more. And so with this reading I learned that the economist Frank Knight makes an important distinction between risk and uncertainty. "Risk describes a situation where you have a sense of the range and likelihood of possible outcomes. Uncertainty describes a situation where it's not even clear what might happen, let alone how likely the possible outcomes are." At present most everyone's hearts are filled with uncertainty. I share that sentiment when it comes to my investments. I am worried too about paying for college. The problem is that people conflate the uncertainty of their investments with life in general. Life has always been filled with risk. The beauty of spending years absorbed in the study of ancient texts is that you come to realize that human history (and especially Jewish history) is filled with periods like today's, when people are gripped by uncertainty. This perspective of the history of thousands of years gives me strength. It gives me faith to see our current times as those certainly beset by risk, but also by unforeseen opportunities. One day, when the history of our days are written, I am certain we will be able to look back and say, "Because of 2009 we are now blessed with..." I do hope however that it is more than the snap, crackle, pop of Rice Krispies.